Project background Nepal has a long history of Tea cultivation, initiated with the establishment of Ilam Tea Estate in the Hills of Ilam District in 1863 and Soktim Tea Estate. Tea is widely cultivated in the eastern hilly regions. Major tea producing districts are Jhapa, Ilam, Panchthar, Dhankuta and Terathum. Tea is one of the main cash crops in the hilly districts in Mechi zone contributing to rural and national economics and to alleviating poverty through income and employment generation. Orthodox tea, which is produced at altitudes between 3000 - 7000 ft are famous for its aroma, bright liquor and subtle, slight fruity flavor, which are mostly sought attributes by the consumers of overseas countries. Orthodox Tea is a high value, flavor intensive perennial crop with a potential for generating foreign exchange, reducing rural poverty, promoting economic growth and improving ecology and environment. The total land area under orthodox tea plantation is around 14,000 hectares; this industry consists of more than 35 tea states, around 18,000 small orthodox tea farmers and about 17 tea-processing factories (source: HOTPA). Currently Nepal is producing more than 1.7 million kg of Orthodox tea of which small farmers' contribution amounts to 67.8% (Baseline GTZ, 1997). 2.2 million kg of Orthodox tea is produced in a year 2010(source: HOTPA, 2010). Now Farmer's contribution is more than 85% in production and more than 95% is being exported. More than 90% of orthodox tea is exported to India and overseas countries and the rest is partially used for consumption and partially for blending purpose in black tea to impart good flavor. There are 14 mini processing factories operated by individual tea farmers and cooperatives which produce very nominal quantity but in the future its scope of operation will be increased due to interest of all cooperatives to establish such small factory so that they can produce tea by themselves without depending on factory. Due to the growing demand of Organic tea in the international market there is a realization of converting factories and garden of individual farmers into organic by certifying in a group and there are 3 factories and 7 groups already certified by NASA. As the international certification is expensive Code of Conduct for tea produced in Nepal is envisioned in a year 2003, which is owned by Himalayan Orthodox Tea Procedures’ Association (HOTPA) and jointly implemented by HOTPA and TEASEC with support from Tea Alliance, which regulates the production, processing and marketing of tea in Nepal with due consideration for ecological, social and economic dimensions. CoC implementation is at the primitive stage especially at the tea farmer’s level and need more promotion, education, and ultimately economic benefit to them. Now more farmers are attracted towards CoC tea due to the reason that the Internal Control System adopted in CoC has helped the farmers to also get Organic certification within very less time frame. Rationale In the previous phase program intervention with support from Agriterra and SNV, TEASEC has facilitate in establishing 49 cooperatives with 2,859 members and provided them with the services to build their capacity to manage their business. They were provided trainings on cooperative management and accounting. Business plans of all 48 cooperatives have been prepared. Now there are four district level cooperative federations in all program districts and Central Tea Cooperative Federation (CTCF) which is an umbrella organisation representing four district cooperative federations and is recently established. All cooperatives are now actively operating with regular savings and credit from their members, they are maintaining four ledger accounting system and few cooperatives have involved in selling green leaf to the factory with regular collection from their members. Cooperative federation in the district is now supporting cooperatives in delivering services with support by TEASEC Social Mobilizers. 15 cooperatives have submitted proposal to the Commercial Agricultural Alliance (CAA), a project implemented by the World Bank and 7 have received funds which has been utilized to invest in developing infrastructure in the tea sector. There are 1,200 tea farmers who are still not associated with the cooperatives or farmer’s groups. So the number of cooperatives is likely to increase in the future. These tea farmer’s will be further counselled and provided with services from the TEASEC. Very few female members (2%) are in the cooperatives and in the decision making positions. District cooperative federations do not have sufficient human resources to work in a full time basis. Social Mobilizers will thus be stained at District Federation office to maintain database of tea sector and by 2013 they will be permanently stationed there. There are existing 15 mini processing units which operate in areas where there is difficulty in transporting green leaf to the big tea factory. There are many such remote places where tea is grown in scattered pocket areas and so need to expand with more mini processing factories in the future. There is a growing demand and every tea farmer’s choice to certify their tea garden into organic certification. For certifying with organic it requires minimum of 3 years after complying with ICS. But Himilayan Sangrila has certified with organic by NASA within 2 years along with 2 cooperatives and 1 farmer’s group as a sub licensee. This has been possible due to the reason that they were previously certified with CoC and complying ICS. This means CoC standard is a stepping stone towards organic certification. Similarly, this trend is going to continue as Gorkha factory which is already complying CoC is going for certifying with Organic along with Eco and Sundarpani cooperatives. Monitoring of regular tea sector indicators is another aspect which is completely missing. TEASEC will have to take a lead in facilitating to regularly keeping the database of all major tea indicators as there is now a permanent reporting structure from individual farmers to Central Tea Cooperative Federation. Capacity of Social Mobilizers will be enhanced to keep tracking of information. The key points are summarized below to justify the need of program: - Government of Nepal, Ministry of Agriculture, and Cooperative has published “organic guideline” for certification of organic agriculture products. - HOTPA, an association of tea factory has a vision of converting all orthodox tea garden of Nepal into organic by the year 2012. Tea being exportable product to EU, Japan and those countries has regulation and pesticides band. - Major buyers from German (Mr. Thomas Holz) and America have already requested to provide them organic tea due to the reason that if any consignment is detected with pesticides than the whole industry may be collapsed. - Almost all chemical fertilizer used in Nepal is imported from India and other third country. Going into organic will stop importing fertilizer and save from losing foreign exchange. - In neighboring country India at Darjeeling are already in the process of converting their tea garden into organic. Darjeeling tea is looked as a competitor. - Organic market of orthodox tea is increasing in the positive trend. - European buyers are demanding tea that complies with the CSR standard and CoC covers those aspects of standard. - Approximately 95 % of orthodox tea is exported to Europe, Japan, America and India that reveals that market of organic orthodox tea is increasing in the positive trend. - Farmer cooperatives and its federations are instrumental to lobby and advocacy with the government and other donors that will ultimately increase bargaining power of the smallholder farmers. - 14 mini processing has already been established by the Individual farmers and cooperatives and this will continue to grow in the future. TEASEC will provide necessary services to these mini processing as a commercial business services to improve their quality of tea and overall marketing support. Context: This is an inclusive proposal prepared by Tea Sector Service Centre (TEASEC) for Agriterra and SNV Netherlands Development Organization (SNV) for funding within the framework of the partnership between Agriterra, SNV and Agri-Pro Focus. Objectives Overall goal is to contribute in sustained rural poverty reduction of smallholder tea farmers of eastern district of Nepal by increasing their income, and equally empower small farmer based organizations to provide better technical and management services. The program envisage following objectives: 1.Capacity building of Central Tea Cooperative Federation (CTCF), District Cooperative Federations and the Cooperatives and provide enterprise development support services. 2.Implement Inclusive Business (IB) model with the two factories and CoC program by involving tea farming. 3.Provide regular improved tea technology services to the tea farmers. 4.To establish effective supervision and monitoring system in tea sector for regular information dissemination. 5.Support small processing units established by cooperatives. 6.Capacity enhancement of TEASEC. 7.To empower female members of the cooperatives and bring them in decision making position. Expected results Following outputs are expected after implementation of program activities as proposed. - CTCF will have capacity to independent handle ID/OS services to their federations and cooperatives from 2013 onwards. District level cooperatives and federations will be bring more financial resource and sustained by themselves. - TEASEC will transfer technology to the 10 mini processing units which will be established in the future by the cooperatives or individual farmers. - It is expected that additional 7 new cooperatives will be formed and they are provided services on their institutional development. - 2 factories will continue in IB model and provide necessary services either free or cost sharing basis to the tea farmers such as Organic certification, tea technology etc. - Quality of tea will be improved and farmers will be able to fetch 10% high price from the previous year from the tea factory. - 20% increase in quantity of orthodox tea from the previous year. - All progress of tea indicators will be reported through regular monitoring database from the TEASEC. Monitoring framework implemented will be accepted by all cooperatives, federations etc. - At least 48 female executive committee members have leadership power and are capable of managing their cooperative Main stakeholders of this project are: This project will be implemented by TEASEC with the funding support from Agriterra and SNV. There will be advisory services from SNV and indirect supports from Central Tea Cooperative Federation, HOTPA Himalayan Orthodox Tea Producers Association, HIMCOOP Himalayan Tea Producers Cooperative Ltd., and NTCDB National Tea & Coffee Development Board.

The 2009 project focussed much on institutional strengthening of Cooperatives and district federations, preparation of businesspland of coopertaives, capacity building of TEASEC staff. Technical service delivery was provided on Code of Conduct (SNV support) and tea plantation management (aiming at enhanced production). During 2009 it was realised that there is an increasing demand for organic orthodox tea (international market demand) and a growing need for international organic certification. CoC certified tea includes organic but has not an international recognition. Overall goal of the program will be foremost focus on improving livelihood of orthodox tea farmers through improved organic tea farming technology, institution development support services to the newly established cooperatives, district cooperatives federation and national cooperatives federation so that the quality of green leaf is improved and gets premium price. Objectives in 2010: 1. To collect baseline information necessary for organic farming and certification of tea gardens of individual farmers with internationally recognized organic standard. 2. To educate and disseminate organic tea technology and other technical inputs to the tea farmers. 3. To establish national tea cooperative federation and build their capacity to provide institutional development and other advisory services to their district federations. 4. To continue promotion of CoC activities as directed by HOTPA and increase the number of CoC tea farmers where CoC will be positioned as an ethical “All Fair Nepal Tea, Socially responsible Quality tea from Himalaya”.

Tea Sector Service Centre (TEASEC) is the first organised institution for orthodox tea producing smallholders in the Eastern Himalayan Region in Nepal. The mission of TEASEC is to provide services to the small growers (85% of the tea of this region is produced by them) and enterprises to produce high quality orthodox tea and to generate sustainable incomes. SNV Nepal is actively supporting (advisory support) TEASEC in partnership with Agriterra . TEASEC submits a inclusive project proposal to SNV, AGriterr and JICA (third donor for TEASEC), which comes down to: 1. Capacity strengthening of cooperatives, district federations and TEASEC (to be supported by Agriterra) 2) Improved tea cultivation technology delivery to the farmers in Dhankuta and Terhathum to be supported by Agriterra (JICA program is covering such activities in Ilam and Panchthar ) 3) Code of Conduct (CoC) implementation in Ilam, Panchthar and Dhankuta to be supported by SNV 4) Support for small tea processor in Ilam, Panchthar, Dhankuta and Terhathum to be supported by SNV 5) SIGE / Special support for Women tea labour and Women tea farmers cooperatives to be supported by SNV

Agriterra does not have a partnership with TEASEC. It is a young organisation which exists as from 2004. This is the first project proposal sent to Agriterra. The goal of the program is to contribute to sustained rural poverty reduction in Nepal by increasing income, employment and productivity of the orthodox tea sector. Through capacity building of TEASEC and it’s partner organizations e.g farmer (cooperative) federations; 4 district (cooperative) federations and farmers groups take actively part in the development process of orthodox tea. Main objectives for 2008 are: 1) Improve efficiency and effectiveness of TEASEC as and sustainable and viable organization 2) Improve service delivery and capacity of the farmers (cooperative) federations and farmer groups 3) Improve linkages and coordination Main activities are: setting up the offices for district federations and TEASEC office in Eastern region; training for staff and federation memebrs on IT and accounting and 4 strategic planning sessions at district level.